Thursday tips round-up: Persimmon, Interserve

8th Jan 2015 07:40

A detailed look at homebuilder Persimmon's trading update, the first from a company in the sector, shows the rate of growth is falling back. Despite this, and the current uncertainty surrounding the upcoming elections, last year's numbers indicate the company, and the wider sector, are still moving in the right direction. In that regard, at the end of autumn the value of forward sales was still 7% ahead year-on-year. In fact, the builder has been making preparations to accelerate its work pace, scooping up two years' worth of land output for instance.The downside to that is that the company's remarkable cash position at end of year, which stood at £378m, will be pared due to the need for increased capital working capital requirements and to pay for some of those land purchases. Nonetheless, implicit in such a solid cash figure is that the ambitious plans to return capital are easily achivable. Indeed, the shares are trading on a forward dividend yield of 6% no less. On the other hand, at twice the forecast net assets the stock looks fully valued and with little further space to run higher. "Hold for income," says The Times's Tempus.Support services and construction outfit Interserve has been knocked down because of the drop in oil prices. The fear has been that the drop in the price of oil might affect various of its operating segments. For instance, work on oil and gas rigs or construction projects in the Middle East. Those fears are misplaced. The former represents only a small slice of the company's business and is continuing on a maintenance basis. Similarly, work on large projects in the Persian Gulf region, such as the World Cup in Qatar or upcoming Dubai Expo, are enormously unlikely to be shelved.Yes, a somewhat heterogeneous mix of recent contract wins, a defence contract here, £600m in probation work for the Ministry of Justice there, will necessitate a reshuffling of its workforce, which could dampen activity in the first half. Yet the company's record of double-digit earnings growth looks set to continue. Furthermore, the integration of the recently purchased facilities management unit of Rentokil Initial is running apace. On less than nine times earnings, which is cheap, and changing hands at a 4.5% dividend yield, the shares are a 'buy', Tempus writes.